Flipping houses is a great way to make a profit with real estate investing, and it’s also a great way to learn the ropes if you’re a beginner investor. Flipping introduces investors to every part of the real estate process, from researching and buying a home to marketing and selling once all the work has been done. This also means there are plenty of opportunities to mess up along the way, especially if you aren’t familiar with certain parts of the flipping process. It only takes one bad decision to turn a potentially profitable deal into a bad one. Want to know what to look out for when flipping houses? Here are the 6 biggest mistakes to avoid.
Not researching the market and neighborhood
Location is everything when it comes to real estate, and that holds especially true for home flipping. You can spend as much time as you want making a property beautiful, but if it’s in a bad area then you’ll still have a hard time trying to sell it. Before you make any purchases, you should dedicate time to researching the market you are investing in to see if it’s growing or shrinking. After you have found a potential property, you need to make sure it’s in a neighborhood that is safe, and ideally one that has access to lots of amenities. This can lead to increased demand for your property and helps ensure that you don’t have to lower your final sale price just to get a property off your hands.
Buying without ordering an inspection
One of the biggest mistakes you can make in real estate is purchasing a property before you order a proper inspection. While you’ll definitely want to see a property in-person to make sure it’s in decent condition, that doesn’t mean you should stop there. A professional inspector will be able to identify underlying issues that can easily go past the untrained eye. There are certain problems like flood or structural damage that can be hard to see right away, but also very costly to repair. Make sure to get a home inspection so you can avoid things like these which can kill your bottom line.
Going without a plan
Making a detailed plan, and sticking to it, is a key factor for success with real estate investing. For flipping, a good plan ensures you stay on schedule and don’t go overboard with renovations. The plan should also include an accurate budget for your project. This will help you calculate the ARV (after-repair value) of the home which determines your potential return. If you aren’t very familiar with prices for materials and services, it can be a good idea to leave a 10% buffer for each line-item in your budget.
It can be very easy to overshoot the after-repair value of a property when you are making estimates. You obviously want to get the most of your investment, but you also need to be realistic about the home’s selling price. There’s nothing worse than spending lots of time and effort on a project, only to have it break even (or worse, lose you money) at the end. When you’re trying to calculate the ARV of a property, you should start by looking at comparable homes in the same area/market. You can also hire an appraiser to get you a more accurate number that’s specific to your property.
Making the wrong renovations
Another thing you want to avoid when flipping houses is performing the wrong renovations. The upgrades you choose to make to a home should add value to it while costing you relatively little. Some great examples of this include new paint for the rooms, new flooring and appliances in the kitchen, and remodeling small areas like bathrooms. The design of the home should also have broad appeal, so as not to put off any buyers. You need to separate your personal tastes from the renovation process, even if it’s hard to do so. Remember that your goal is to make a profit on the investment, and that you’re not going to be the one living in the property after all is said and done.
Choosing the wrong lender
The easiest way to save on your next investment is to obtain financing from a real estate lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are an investor looking to finance a home flip, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.